July 28, 2004 by Canadian Underwriter
Businesses in the U.K. say the growing compensation culture there is taking focus and resources away from core business and revenue generation, according to a new survey by international broker Aon.
A full 75% of businesses surveyed say rising compensation trends are “creating an unsustainable burden for industry, commerce and public services”.
While 60% of businesses says the compensation culture is distracting management time, 49% say it takes away financial resources and 46% say it creates too much red tape.
Respondents blame the growth of contingency fees for lawyers, heavy media advertising by the plaintiffs’ bar, and the reluctance of insurers to defend claims as key reasons for the rise of the compensation culture.
While a recent U.K. government report asserts that the compensation culture is not “out of control” a la the U.S., 62% of the businesses surveyed by Aon say they are seeing an overall increase in the cost of claims to their own businesses. And 96% say the government needs to do more to address this issue, with some respondents even noting the trend could cause companies to offshore operations to escape the U.K. culture.
“Whatever the debate around the existence or not of the compensation claims culture in the U.K., and our survey shows 62% have seen an overall increase in the cost of claims over the last five years, the hard evidence here is that U.K. businesses are picking up a significant cost in terms of managing increased insurance and regulatory costs,” says Aon Ltd. deputy chairman Max Taylor. He says the diversion of resources, both in time and money, caused by the compensation culture, will ultimately have an impact on earnings.
Commenting specifically on the charge that insurers are contributing to the compensation culture by settling claims out of court, Taylor says, “one possible consequence of this might be an increase in the total number of fraudulent or spurious claims that ordinarily would not stand up in court”.